What is a Stag?
Stag is a slang term for a short-term speculator—a day trader, for example— who attempts to profit from short-term market movements by quickly moving in and out of positions. Day traders, or stags, typically require access to a lot of liquid capital to fund their positions and make a living. This is required because they may be attempting to gain returns on small price movements multiple times each day or with multiple positions at the same time.
Stags will often use techniques associated with technical analysis or tape reading as the basis for their trading decisions since long-term fundamental analysis typically does not help when looking to make quick trading decisions over the course of hours or minutes.
- A stag is a short-term speculator who attempts to profit from short-term price moves, such as a day trader for example.
- Stag traders typically require significant amounts of capital in order to capitalize effectively on small price moves and make a living. The U.S. minimum required balance in a stock day trading account is $25,000.
- There are loads of strategies used by stags, and stags can change from bullish to bearish, or vice versa, in seconds as short-term trading conditions are often changing.
Understanding the Stag
The term stag refers to a speculator who buys and sells stocks in short timeframes to make quick profits. A stag trader looks for conditions where the price of a stock (or another asset) is likely to have a large price move either higher or lower, and then positions themselves accordingly to take advantage of the ensuing price move.
Another strategy or tactic the stag may employ is to be more of a market maker. In this case, they may look for stocks/assets that are relatively stable but will attempt to buy near support or sell near resistance, and/or capture the spread, based on the assumption that the price won't move much and they can make a profit off of ranging or choppy price movements.
Traders engaging in stag strategies include both individual traders and institutions. In order to profit from the small short-term price movements associated with day trading, traders will generally buy large blocks of stocks. In order to day trade stocks in the U.S., the minimum required account balance is $25,000. That is the minimum, but most day traders start out with and utilize more.
Bulls, Bears, and Stags
Bullish and bearish are the two most common terms used to describe the thought processes and actions of an individual investor. These mentalities are based around the intentions of investors who seek to gain from market movements.
A bullish trader is one who believes the price of an asset will rise. Buy-and-hold strategists are normally bull investors.
Bearish traders, on the other hand, are those who believe the price of an asset will fall.
While a long-term investor may be perpetually bullish, always looking for something to buy and assuming the stock will always rise over time, the stag investor may rapidly change from bullish to bearish, and vice versa. On any given day an asset may rise or fall, and even when an asset is rising overall there will be periods when it falls. Since the stag is only in trades for a short period of time, they may trade many of these price oscillations higher and lower.
Stag Trading Tactics
There are many different ways to day trade. Some traders look for an asset that is trending higher, and then attempt to buy during pullbacks, or when the price moves above a prior swing high. The same concept can be applied to downtrends, looking to enter short when the price makes a new swing low or pulls back and then starts to drop again.
Other traders may look for ranging stocks or assets, attempting to buy near support and sell near resistance. They are assuming the asset's price will remain relatively stable and not move significantly beyond support or resistance.
Other traders watch for breakouts from chart patterns which could indicate a sharp price move in the asset.
Other stag traders watch for gaps at the market open. They then decide if they will fade the gap, assuming that the gap will fill over the course of the day, or if they will trade in the direction of the gap assuming the price will continue to move in the gap direction.
In all cases, the trader is attempting to profit from intra-day price moves, and will typically take one or more such trades in a day, or possibly many such trades.
Example of a Stag Trading Strategy in a Stock
Trend-based strategies are popular among stags because trends allow the traders to focus on trading in trending direction and potentially profit if the trend continues.
The following chart of Momo Inc. (MOMO) shows a gap higher followed by an initial price surge. The price soon falls back below the volume weighted average price (VWAP) and the open. After the failure to move higher and the drop below the open, a trend trader could look to get short on the next pullback, and all subsequent pullbacks assuming the downtrend starts and remains intact.
Indicators, such as the stochastic oscillator could be used to aid in making trading decisions. In this case, a bearish crossover with the signal line near overbought territory could be used as a signal to get short.
When a stock is trending, this style of entry can work well. In the example, multiple short entry signals were given, all of which provided the opportunity for profit. Such an entry strategy runs into problems when the trend slows down or the price action becomes more choppy. This may result in multiple false signals or the price not proceeding in the expected direction after a signal.
Because of this, stags don't typically rely on only one tool or form of analysis. They look at overall market conditions, read price action, and they may utilize one or more technical indicators, tape reading skills, or statistics to aid them in their trading.
In addition to an entry strategy, stag traders will also have exit rules which tell them when to get out of profitable trades and losing trades. They also have position size rules, letting them know how big or small of a position they should take on a particular trade setup.